Why HR Should Never Report to Finance

Why Reporting to Finance Is a Bad Choice for the HR Function

As businesses grow and begin to add employees, the first HR-type activity needed is recruiting, of course. But, additionally, employers must pay people and people need benefits. So, often, the first person holding part of a Human Resources role is the person who pays the staff. This may be an administrative assistant or a member of the finance or accounting departments.

No matter what this individual's title or job is, this person generally reports to finance and accounting.

Just because this is how a small business usually grows, doesn’t make it the right path for your business to travel. It’s most likely not.

So, the skill set of the financial person who pays the staff is generally not up to speed for even the financial aspects of their HR job. The chances of this person knowing and understanding the other facets of the HR role in an organization are nil.

Checks and Balances Between Functions

Every organization needs checks and balances. When HR reports to finance, the hands of the people most likely to advocate for effective people policies and organization development—your HR staff, are tied.

When HR reports to finance, your HR person is moved one step further away from where organizational decision making occurs—at the executive table.

When HR reports to finance, policy decisions are primarily finance driven and are often not employee friendly. They need to consider people for your organization to succeed.

It's absolutely critical that HR speak the language of finance—HR staff members have to put things in terms the financial staff can understand. But, when the direct boss of HR is finance, there is no one else to advocate for people-related programs. Business leaders need to understand the importance of a happy staff and the relationship between employee satisfaction and productivity and contribution.

If any of this is the case, finance is right to disagree with and doubt HR when they say this next program will fix the organization's problems. When, however, HR is doing its job, it needs an advocate who understands the value of spending money now to make more money later.

For example, giving a valued employee a needed raise today makes them less likely to quit their job, which saves the organization higher turnover and training costs.

Where Should HR Report?

So, who should HR report to? In an ideal world, the head of HR should report directly to the CEO. This reporting relationship makes HR part of that senior leadership team that helps guide and direct company policy.

All aspects of employment should be considered as checks and balances.

Finance serves a critical role in a company. It's their job to keep costs down and income high, but having the best people, who are treated well, and paid a competitive salary, is the way to do that.

You need to strike down any barriers that stand in the way of your people so that the business can succeed. When HR reports to finance, rather than being an equal with finance, that is an extremely difficult reporting relationship.

Keep your checks and balances in place. HR should never report to finance and accounting.